Leeds is offering 4% on cash but you’ll have to lock in for a decade

Leeds Building Society has launched a market leading savings bond paying a 4% interest rate but there’s a catch: you have to lock in for 10 years.

The mutual says it has launched the bond, which is paying eight-times the current Bank of England base rate of 0.5%, due to customer demand for better returns.

With the base rate held at a historical low for over five years and cheap government money providing banks and building societies with little incentive to entice savers, returns on cash have been thin on the ground.

The minimum investment in the fixed-rate monthly income bond is £10,000 and no withdrawals are permitted over the decade.

Kim Rebecchi, Leeds Building Society sales and marketing director, said: ‘In the historically low interest rate environment, a savings product with a competitive return which generates monthly income is particularly appealing to savers on fixed income.

‘We know there are savers seeking longer-term investment and at the end of the bond’s 10-year ter, customers will have benefited from an income totalling 40% and still have all their capital.’

Is it a good deal?

The bond offers a 4% rate which is the best on the market but locking yourself into a bond for 10 years when interest rates are threatening to rise may not be such a good idea.

Bank of England governor Mark Carney has already hinted rates could rise to 3% by 2017, just three years away, so in 10 years the interest rate could be far higher than 4%.

Sylvia Waycot of comparison site Moneyfacts.co.uk said the base rate was 4.5% in 2004 which shows just how much rates can move over a 10 year period.

She said the Leeds bond was an option for those looking to supplement their income with a monthly top-up but if an individual had an appetite for risk then they could consider investing in the stockmarket as an alternative.

‘If someone was looking for monthly income to supplement their income and they want certainty then it is an option. However, there are other things available for people with a 10 year span,’ she said.

‘It all depends on attitude to risk but you could invest in the stockmarket and expect a return over 10 years and if you do not have any attitude to risk then you still have to consider what happens with interest rates.

‘It is personal choice but commentators are all saying they expect rates to go up and if you think there is a chance they will do that then you do not want to tie in to what may well become a low rate in the future.’